Produced by Julie Garland-McLellan, Consultant at AltoPartners Australia and non-executive director and board consultant based in Sydney, Australia.

Contribution by Ranju Shergill, is the Managing Partner at Humanis Talent Acquisition & Advisory / AltoPartners Calgary, Chair of the Board of Directors at Calgary TELUS Convention Centre, Director of Alberta New Home Warranty Program, and Americas Council Member of Association of Executive Search and Leadership Consultants (AESC). She has extensive experience in Board recruitment for public and privately held organizations as well as the not-for-profit sector, leading Board assessment and advisory mandates, and DEI initiatives.

This edition of the newsletter was first published on The Director’s Dilemma website and the full newsletter is available for viewing here To subscribe to future editions of the newsletter, click here

The Director’s Dilemma - March 2025

This month we consider whether to have board observers, and if so, how to induct them.

Van chairs a government-sector utility board. The company prides itself on its strong role supporting community development as well as delivering its products and services to the community. All senior staff are encouraged to take active roles with NFP boards and community programs.

The CFO has been closely involved in teaching for the professional accounting association and is on the steering committee of a government-sponsored mentoring program for public sector accountants. She has asked Van if two accountants from that program could attend board meetings as observers to extend their understanding of governance and prepare them for board roles in the future. Van would love to help. He believes his company is well-governed and could usefully play a role in developing the next generation of board observers.

He also has some concerns about confidentiality, overcrowding the boardroom, access to the board papers via the portal, and how much effort would need to go into inducting the new observers. He knows the CFO will be reluctant to choose one mentee over the other but wants to reduce the work and risk involved for his board and secretariat.

How should he proceed?

Ranju’s Answer

Board observers have access to sensitive and confidential information without assuming the formal responsibilities or accountabilities of a board member, which can create new challenges such as market competition, reputational risk, and public scrutiny. If the decision is to bring in observers, there should be unanimous approval of all board members.

The question is whether the board is gaining any value by having board observers. Boards looking to bring in observers are generally seeking additional support and insight for purposes of their own governance or decision making. In other words, it’s for the learnings of the board, not the observer. As the Board Chair for a civic board, serving with the City Mayor, Councillor and Administration representative, we also deliberated whether we should invite observers onto our board for succession planning with prospective Directors. We decided against this due to restrictions within our board bylaws and the challenge of managing confidentiality and fiduciary duty for observers who are not formally approved by the City.

As a government-sector utility board, we would assume there to be government representatives on the board as well as independents and likely, the CEO of the utility. There would also be a Terms of Reference or other board regulatory document outlining the possibility of having board observers or not. Assuming there are no regulatory restrictions on having a board observer and the CFO has the support of her CEO rather than going to the Board Chair directly, we would want to consider the role of management in the business’s community initiatives separately from the board’s governance and fiduciary duties to the business.

Every board must weigh the risks and rewards of allowing observers. In this case, the risks outweigh the benefits, and Van should help the CEO communicate that effectively. However, there are still ways to support emerging leaders without compromising governance.

Julie’s Answer

It’s a conundrum, you need to have board experience to help get appointed to a board seat!

I’m glad that Van wants to help, and also that he is taking the risks and imposts very seriously. The potential for creating a conflict of interest between the CFO’s duty to the board and to the participants in a mentoring program is very real. Often, directors are more attuned to conflicts of interest than the executives. He must explain to the CFO that the primary concern of the board is the long term best interest of the company, not the short term assistance of promising future directors.

Van does not have authority (even as Chair) and must ask his co-directors what they want to decide. He could usefully talk it through with the CEO before he does.

Government policy and the sensitivity of items on the board’s agenda are relevant. Does the Minister support mentoring directors? Are there conflicts of interest or duty between Van’s board and the organisations that the observers are employed by? Can information be protected by confidentiality agreements, recusing, redaction, etc.?

If the Board decides not to take on one or both observers, Van can still help by reaching out to chairs in his network to see if they may benefit from some fresh financial expertise in their boardrooms. If a place or two can be found elsewhere, the problem is solved and the conflicts of interest minimised.

If the Board does take one or both, there must be a careful induction, designed to give appreciation of board protocols, confidentiality, collegiality, and the over-riding imperative to safeguard and advance the interests of the company. I hope that Van’s board will decide the risk is worth taking; someone gave them their first chance in the boardroom, and it is good to build a future pipeline of directors for government-sector boards.